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Bonus and Self employment
04-05-2004, 10:17 AM,
Bonus and Self employment
I need some assistance.

Say I am employed by you on the following terms

1. Monthly guaranteed salary Rs 15,000
2. Performance linked bonus is variable and range from Rs 1 to Rs 50,000 per month.

Now 15000 salary could be programmed to 55%, 45% and 10% route.

but performance linked bonus cant, becuase it is variable and Revenue will throw out the 55%, 45% and 10% strategy. By the look of it, the bonus will fall in the salary slab and subject to PAYE deduction. Can any one suggest any possible solution of reducing PAYE liablity on performance linked bonus.


04-08-2004, 12:11 AM,
First of all I shall like to request all users of this forum to always mention the tax system they are referring to i.e UK or Pakistan, as ACCA students are mostly asking about UK tax.
As regards to your queation, let me remind you that bonus is not at all a tax planning tool, it always increases tax liability when evr paid in cash. However if you are in start or in middle of a tax slab, only then its useful.
More attractive option for employees is share option, as it is not taxable.
Please be more specific in your requirement to let me answer your question in greater depth.

Aamer Sikandar
04-08-2004, 02:27 AM,
what other info. do you need....

Say, I have an employee salary is 15,000 RS. per month. in addition person gets variable bonus ranging from 1 - 50,000 rs. per month. How can we minimise tax. Assistance is sought in line with pakistans tax legislation.


04-10-2004, 11:55 PM,
Reference your question about bonus. Bonus does not reduce tax liability. Infact the only tax liability reducing strategy is where you can manipulate timings of payment. Thus for bonus to employees its fixed. Moreover salary does not have any deductions. This complicates the case.
OPtion one is to have some equipment like computers which are your property used for business. They attract depriciation even in the hands of employee and thus can to some effect offset the bonus payment.
Option two is to have performance payment - even bonus in the shape of stock options. Then you can easily manipulate timmings and plan tax. This is recommended option.
Though I am not current on the exact case law, but I distanctly remember that their was some case law which excluded bonus from salary on the grounds that salary is definite even before earned whereas bonus is not definate since it may or may not be announced. This should have support of your past bonus income history to prove the fact that your bonus was subjective even till announcement. This shifted bonus from salary to other income. However I may warn you that I just remember having read this case law in distant future. Please dig it out before you proceed. Best option still is having performance based bonus as share option. Thsi shall open a world of tax planning and additional income opportunities to you.

Aamer Sikandar
04-12-2004, 08:18 AM,
Thanks for taking time to reply.


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